Metro Atlanta Opportunity Zone Update March 28, 2019 Presented to:
Overview • Urban Key Capital Partners is a mission-driven, specialty financial advisory firm with expertise in: – Financial Advisory Services – Private Placement Services – Fund Management Services • Urban Key Capital Partners provides a range of financial services to highly- impactful real estate development projects, operating companies and fund managers in distressed communities • Urban Key Capital Partners' financial services include specialized knowledge of tax credit based investing, non-conventional debt, public sector financing and public private partnerships • Our team’s principals has been involved with some of Atlanta's most impactful public private partnerships 2
Services Financial Private Fund Advisory Placement Management Services Services Services 3
Financial Advisory Services • Urban Key Capital Partners provides strategic financial advisory services for complex catalytic real estate development projects and operating businesses in distressed urban markets • The Principals of Urban Key Capital Partners have direct experience in structuring financial solutions for some of the largest public private partnerships in the Atlanta MSA. Financial advisory services currently offered include: – Tax credit finance structuring – Tax increment finance structuring – Redevelopment finance structuring – Debt and alternative financing structuring 4
Private Placement Services • Urban Key Capital Partners team members have assisted clients with raising third-party mezzanine and equity capital to make their projects come true • The Principals of Urban Key Capital Partners have specific experience with public sector economic development incentive capital such as tax increment finance, tax-exempt and taxable bonds and new markets tax credit transactions. Private placement services currently offered include: – New markets tax credit finance – Tax increment finance (tax allocation district bond and "pay go" finance options) – Lease purchase bond finance – 501(c)(3) bond finance – Small business revolving loan fund finance – Alternative financing solutions 5
Fund Management Services • The Principals of Urban Key Capital Partners have direct experience with managing over $300 million of new markets tax credit allocation through direct fund management activities for certified CDEs on a third-party basis • From securing NMTC allocation to active deployment and responsible program compliance, this direct fund management activity has provided in-depth experience in managing NMTC investment funds. Fund management services currently offered include: – New markets tax credit allocation application services – Third-party outsourced fund management services – Risk and asset management services – NMTC program compliance services • In 2014, Urban Key Capital Partners created Urban Key CDE in order to make direct investments in highly distressed census tracts 6
Management Team Tyrone Rachal Mr. Rachal serves as President of Urban Key and is responsible for managing all aspects of CDE operations. Mr. Rachal has over 20 years President of experience in community development finance, private equity funding and municipal finance. Prior to Urban Key, Mr. Rachal was founder and President of Atlanta Emerging Markets, Inc. (AEMI) which is a four-time allocatee with the NMTC program receiving $148 million of NMTC allocation. In addition, Mr. Rachal was Managing Director of Redevelopment for Invest Atlanta which serves as the redevelopment authority for the City of Atlanta where he managed all tax increment finance (TIF) and NMTC activity for the City. Mr. Rachal has vast experience securing NMTC investors and debt providers, identifying and screening projects, underwriting investments, maintaining compliance and organizing opportunities for community involvement which prompted Mr. Rachal to start UK. Prior to his involvement in NMTC financing, he co-founded Red Rock Global which is a minority-owned real estate advisory services business concentrating its activities in distressed urban communities in Atlanta. Prior to Red Rock Global, Mr. Rachal was an investment banker with Merrill Lynch & Co. in New York within the Private Equity and Mergers & Acquisitions Groups. 7
What are Opportunity Zones? • Four Parties: Created by the Tax Cuts and Jobs Act of 2017 to provide a new incentive to spur private investments in low-income areas • TAXPAYER QUALIFIED ZONES Opportunity Zones are designated by States and approved by the Department of Treasury (OZ designations last for a period of 10 years) • 10-County Atlanta Region has 52 areas designated as Opportunity Zones PROJECTS (PROPERTY OPPORTUNITY FUND & BUSINESSES) • Taxpayer incentive based on the deferral, reduction and elimination of capital gains taxes • Different than Other Tax Credits: • More market oriented • Residential, commercial real estate and business investments • No benefit cap 8
What are the Benefits? 9
What are the Benefits? 10
How Does it Work? 11
Basis is equal How Does it Work? to Fair Market Value Forgiveness of gains on appreciation of investment Requires an election SALE Basis increased Basis increased by 10% of the by 5% of the INVESTMENT deferred gain deferred gain Up to 90% taxed Up to 85% taxed HELD FOR 5 YEARS HELD FOR 7 YEARS HELD FOR 10 YEARS 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 12
Illustrative Example 2018 2019 2020 2021 2022 2023 13
Illustrative Example June 30, 2028 (after 10 years) , Taxpayer sells its June 30, 2023 June 30, 2025 investment for (After 5 years), Taxpayer’s (After 7 years), Taxpayer’s $2.0MM. Basis in the basis in investment in basis in investment in investment is QOF increases from $0 to Qualified Opportunity deemed to be FMV. $100k Fund increases from The effect is no tax on $100k to $150k appreciation in investment. 2023 2024 2025 2026 2027 2028 Dec. 31, 2026 $850K of the 1MM of deferred capital gains are taxed and the basis in QOF investment increases to $1MM. 14
What is the Impact? 15
What is the Impact? 16
Key Observations • The Opportunity Zones are another tool in the P3 toolkit – OZ Funds are structured as equity with equity-like return expectations – Cost of OZ equity vis-à-vis other redevelopment tools must be considered from the Sponsor perspective (e.g., grants, below-market interest rate debt, tax credit equity, etc.) • The Power is in the Project Pipeline • Local leadership can create an environment that is more conducive to Opportunity Zone investment – Opportunity Zone Prospectus to highlight project pipeline – Online Portal with resourceful information – Site Tours – Fund Manager LOIs • Local municipalities and development authorities can leverage P3 resources with OZ fund management activity – Pairing investment with other redevelopment tools – Leverage add-on investment – Ease certain development requirements 17
Tyrone Rachal President 404.468.8667 trachal@urbankeycapital.com For more information, visit our website: www.urbankeycapital.com 18
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